AMSAA 1 / 13

ECONOMIC REPAIR QUANTITYECONOMIC REPAIR QUANTITY

• Similar to the Concept of an Economic Order Quantity:

Due to the costs incurred each time we induct, it may be more economical to induct a monthly

quantity of repairs at one time

Existence of an Economic Repair Quantity (ERQ) makes it possible to compute a Repair

Requirement Objective (RO)

Repair-RO can be used to improve our repair metrics and authorization policy

AMSAA 2 / 13

ERQ CONCEPTERQ CONCEPT

Economic ORDER Quantity Economic REPAIR Quantity

• Quantity economical to Procureat the Reorder Point

• Used to provide an economicaltradeoff between Holding Costand Admin Procurement Cost

Larger EOQ = Increased Holding Cost Smaller EOQ = Increased Admin Cost

• Quantity economical to Repairat the RAP

• Used to provide an economicaltradeoff between Holding Costand Repair Induction Costs

Larger ERQ = Increased Holding Cost Smaller ERQ = Increased Induction Cost

• Repair induction costs may include:

MSC/IOC/Depot Admin costsassociated with authorizingrepair funds/scheduling/etc.

DLA Issue & Receipt Charges

Repair Shop Set Up costs

ERQ

Holding

Induction

Cost

AMSAA 3 / 13

ERQ COMPUTATIONERQ COMPUTATION

AMD * (1-Replacement Rate)

2 * Induction Cost * AMD * (1-Replacement Rate)Cost to Repair * Holding Cost Rate ERQ

Months

Induction costAMDWashout rateRepair costHolding cost

ERQ Months Vs. Induction Cost for Various $ Values of Average Monthly Repair Cost

0

1

2

3

4

5

6

7

$0 $20 $40 $60 $80 $100 $120 $140 $160 $180 $200 $220 $240 $260 $280 $300 $320 $340 $360 $380 $400

Induction Cost

Ec

on

om

ic R

ep

air

Qu

an

tity

(E

RQ

) M

on

ths

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

$8,000

$9,000

$10,000

$1,000Repair Cost * AMD * (1-Washout Rate)

Holding Cost Rate = 18%

$5,000

$10,000

Larger ERQ forsmaller $ Valuerepair programs

Larger ERQ forsmaller Holding

Cost Rate

Replacement Rate)

AMSAA 4 / 13

• Reorder Point used to decide when to Buy

• Buy when Assets ≤ Reorder Point

Reorder PointAssets

ServiceablesOn-Hand

Due-infrom Repair

& Procurement

Protected War Reserves

Safety Level

Net Procurement Lead Time Demand

UnserviceablesOn-Hand

Empirical Safety Level = [(EOQ/2) +SL] x [Procurement Lead Time / 60 months]

ASSETS vs. REORDER POINTASSETS vs. REORDER POINT

AMSAA 5 / 13

• Repair when Applicable Assets ≤ Repair Action Point

Repair Action PointApplicable Assets

ServiceablesOn-Hand

Applicable Due-infrom Repair

& Procurement

Protected War Reserves

Safety Level

Gross Repair Lead Time Demand

1 month Gross Demand

ASSETS vs. REPAIR ACTION POINTASSETS vs. REPAIR ACTION POINT

AMSAA 6 / 13

Replacement Demand Rate

Procurement Leadtime

Repair Price

Repair Leadtime

Repair Demand Rate

Reorder Point

Acquisition Price

EOQ

(Order Qty)

ERQ

(Repair Qty)

SLprocurement

SLrepair Repair Action Point

TWO SAFETY LEVELSTWO SAFETY LEVELS

AMSAA 7 / 13

• Don’t want to induct Too Soon: Incur unnecessary additional Holding Cost

• Don’t want to induct Too Late: Incur Backorders

• So what’s the latest we can wait to repair without incurring backorders ??

In a Perfect World: Wait until we have just enough units left to fill demand during RLT Repair Action Point = RLT * AMD RLT = Repair Lead Time in months

AMD = Average Monthly Demand

In the Real World: Add a Safety Level to protect against uncertainty in RLT and AMD Repair Action Point = ( RLT * AMD ) + SL

• Repair-SL considers just repair variability / repair costs

WHOLESALE:

REPAIRREPAIR

RETAIL:

OVERVIEW OF REPAIR ACTION POINTOVERVIEW OF REPAIR ACTION POINT

AMSAA 8 / 13

PROCUREMENT DECISIONS:

REPAIR DECISIONS:

Assets

Time

Economic Order Quantity

Feb MarJan

BUYReorder Point = SL + Net Leadtime

Demand

Applicable

Assets

TimeFeb MarJan

REPAIR Repair ActionPoint

Gross LeadtimeDemand

REPAIR

= SL +

THEORETICAL INVENTORY MANAGEMENTTHEORETICAL INVENTORY MANAGEMENT

AMSAA 9 / 13

AssetsDue-In

Service.

Unserv.

LargerSLprocure

SmallerSLprocure

SLprocure =Million

• The Procurement-Safety Level is used to calculate the Reorder Point

• The Reorder Point + EOQ is the level we Buy up to

• Therefore, a larger Procurement-SL means more Assets

Due-In

Service.

Unserv.

Due-In

Service.

Unserv.

Due-In

Service.

Unserv.

Assets

Assets

ReorderPoint

NetPLT

Demand

SL

NetPLT

Demand

SL

NetPLT

Demand

SL

NetPLT

Demand

SL

Single Item PROCUREMENT-SL vs. ASSETSSingle Item PROCUREMENT-SL vs. ASSETS

AMSAA 10 / 13

Q1: Is the Repair Safety Levelalways larger than theProcurement Safety Level ?

A1: No

Q2: Doesn’t more Safety Levelalways mean more Inventory ?

A2: No

TWO COMMON QUESTIONSTWO COMMON QUESTIONS

AMSAA 11 / 13

SAFETY LEVEL Vs. REPAIR COST EXAMPLE FOR A SINGLE ITEM:

0

5

10

15

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Repair Cost as a Percentage of the Acquisition Price

Saf

ety

Lev

el

(Un

its)

Repair Safety Level

Procurement Safety Level

SLrepair < SLprocurementfor Larger Repair Costs

Acquisition Price: $24,964 Repair Price: Varied Procure Lead Time: 12.0 Months Repair Lead Time: 0.7 Months Washout Rate: 7% Avg Yearly Demand: 125 Units

SAFETY LEVEL vs. REPAIR COSTSAFETY LEVEL vs. REPAIR COST

AMSAA 12 / 13

AssetsDue-In

Service.

Unserv.

Due-In

Service.

Unserv.

LargerSLrepair

Due-In

Service.

Unserv.

SmallerSLrepair

ReorderPoint

Due-In

Service.

SLrepair =Million

• The Repair-Safety Level is used to calculate the RAP

• The RAP is used to decide when to Repair

• A larger Repair-SL just means we induct more quickly A different mix of Serviceables and Unserviceables But the same Reorder Point, and the same average Assets

Assets Assets Assets

Single Item REPAIR-SL vs. ASSETSSingle Item REPAIR-SL vs. ASSETS

AMSAA 13 / 13

War Reserv.

50

Repair-SL

106

RLT Demand

108

1 Mon Dem35

EconomicRepair Qty

73

RAP

Repair-RO

Repair-Requirement ObjectiveRepair-Requirement Objective